State Sends Letter to SBA Regarding SBA Loans for Small Businesses Affected by Oil Spill

BATON ROUGE (June 24, 2010) - Louisiana's Secretary of Economic Development Stephen Moret today sent a letter to the U.S. Small Business Administration requesting a policy change that would allow an exception to the normal underwriting standards of SBA to specifically allow repayment in the form of BP claims, if needed, in lieu of SBA's normal process for assessing credit history and repayment ability.

RE: Reducing the high rate of declines for SBA disaster loan applications related to the BP oil spill disaster

Dear Administrator Mills:

I am writing to request your immediate action to address an important issue that is impacting hundreds of small businesses in Louisiana that have been economically damaged by the BP oil spill.

As you are well aware, Louisiana has suffered severe economic and ecological damage from the BP oil spill. Our seafood industry is experiencing huge economic losses that have only been partially mitigated by a frustratingly slow and inadequate BP claims process. Our precious wetlands are suffering incalculable, permanent damages, while our tourism industry faces escalating losses. More recently, we have begun to face the loss of many thousands of jobs associated with the federally imposed deepwater drilling moratorium. The moratorium will not only impact large oil and gas companies but it also will result in the closure of many small businesses that depend on the deepwater drilling industry. Likewise hundreds of small businesses are under severe strain due to other effects of the oil spill.

According to BP, more than 21,000 claims have been filed by individuals and busines ses in Louisiana that have been damaged by the BP oil spill. Hundreds of these claims have been filed by small businesses that do not have the financial capacity to weather an extended wait for reimbursement of their impact claims by BP.

These vulnerable small businesses, many of which already were struggling to survive due to damages they incurred from recent hurricanes, are exactly the kinds of businesses that could most benefit from the SBA's disaster recovery loan programs. Unfortunately, we recently learned that more than 70 percent of the initial Louisiana applicants for SBA's loan programs were denied. According to the SBA, most of these applications were denied due to credit concerns and/or SBA's assessment of the repayment ability of these companies. Yet in many cases these small businesses have legitimate claims with BP that could be utilized to fulfill their loan obligations once their claims have been adjudicated and paid.

As you may be aware, my economic development team has had multiple conversations with SBA managers about our concerns and potential solutions. Our understanding from those conversations is that SBA could change its internal policy to allow expected BP claim proceeds to be assigned as needed to SBA to ensure repayment of any loans made, thereby significantly reducing any potential losses that SBA might otherwise experience. In fact, we were told that SBA utilized a somewhat similar process after the Exxon Valdez disaster to help small businesses impacted by that spill.

Given that BP has committed to fully compensate those negatively impacted by the oil spill, we request that you implement a policy change that would allow an exception to the normal underwriting standards of SBA to specifically allow repayment in the form of BP claims, if needed, in lieu of SBA's normal process for assessing credit history and repayment ability. Such a mechanism would be particularly helpful for those small businesses with more complex claim issues that may take a significant amount of time to fully resolve.